24th Oct 2022

Pierre Janusz (instructed by DAC Beachcroft Claims) for the Defendant.


HHJ Howells:

This is the reserved judgment on the claimant’s application in this case for costs to be awarded on an indemnity basis. In July of this year, I heard the trial on liability of this matter and found in favour of the claimant. After delivery of judgment the claimant made an application for costs of an indemnity basis. As there had been no indication of such an application beforehand and defendant’s counsel was without instructions on the matter, the parties were ordered to file written submissions which they did. I am very grateful to both counsel for the careful and extremely helpful written submissions they have provided.

There is no dispute in this case that the claimant was successful in the action. There is no dispute that the defendant should pay the claimant’s costs. It is also accepted that from 7 July (which was 21 days after the expiry of a relevant Part 36 offer) those costs should be on an indemnity basis. However, the claimant now invites the Court to order that the defendant do pay the costs of the action as a whole on the indemnity basis. It is that application which is dealt with in this judgment.

Pursuant to the Civil Procedure Rules 44.3 the court has the power to order assessment on an indemnity basis. There is a distinction drawn between Part 36 consequences of costs on an indemnity basis and the wider discretion that a judge has to award such costs. In this case the claimant seeks to rely on my wider discretion and contends that indemnity costs should be ordered because of the overall conduct of the defendant.

I have had an opportunity of considering a number of authorities that have been provided to me by claimant and defendant is in relation to this issue. I have also been assisted by refreshing my memory of the notes to the Civil Procedure Practice 2022 at paragraph 44.3.8.

In Excelsior Commercial and Industrial Holdings Ltd v. Salisbury Hammer Aspden & Johnson [2002] EWCA Civ the Court of Appeal clarified early decisions of the court in relation to the general discretion to award indemnity costs. The court declined to give detailed guidance at the principles to be applied by judges intending to make such orders, recognising that every case must be fact specific, and taking the view that they should not strive to replace the language of the rules with other phrases. Nevertheless, it was stated that the making of a costs order on an indemnity basis was where conduct or circumstances was “out of the norm”. At paragraph 38 Lord Justice Waller made it clear that the matter should be left so far as possible to the discretion of judges at first instance.

In Esure Services Ltd v Quarcoo (2009) EWCA Civ 595 further clarification was provided; it is clear from that decision that indemnity costs are not to be ordered solely in cases where there is some lack of probity or conduct deserving of moral condemnation on the part of the paying party. Where in Excelsior there is reference to “out of the norm”, the word “norm” was intended to reflect “something outside the ordinary and reasonable conduct of proceedings”.

There have been a number of other decisions from the Court of Appeal and at first instance where the question of indemnity costs has been considered. Nevertheless, I take the view that, whilst they provide helpful examples and useful guidance, they do not bind me in terms of the exercise of my discretion

I am assisted by approach taken in the case of Three Rivers DC v Bank of England (2006) EWHC 816, a case which has been described as notorious and on its facts extreme, where the claimant abandoned the claim at a very late stage in the proceedings. Tomlinson J gave a detailed summary of factors to be taken into consideration in relation to indemnity costs. It was recognised that the court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide. The critical requirement before an indemnity order can be made in the successful party’s favour is that there must be some conduct or other circumstances which takes the case out of the norm. That test is not a requirement for conduct attracting moral condemnation which is an a fortiori ground but, rather, unreasonableness. The judge listed number of other factors which were relevant in that case for an unsuccessful party (in that case the claimant) to be ordered to pay indemnity costs. The court could and should have regard to the conduct of the unsuccessful party during the proceedings, both before and during the trial, as well as whether it was reasonable for the party to pursue particular allegations. Further where a case was speculative, weak, opportunist or thin, a party could expect to pay indemnity costs if it fails. Certain examples were given which would take a case out of the norm to justify an order for indemnity costs including where a party pursues a claim which was irreconcilable with contemporaneous documents.

It is clear from my reading of the authorities that indemnity costs are not to be awarded simply because a party has lost or has pursued the case to trial which was, on the face of it, weak. It is wrong to consider this discretion with the benefit of hindsight i.e., with knowledge of how a particular issue has ultimately resolved.

The approach I take in relation to this application and my wide discretion, is to consider, pursuant to this line of authorities, the conduct of the defendant during the proceedings both before litigation and after and before and during trial. I then determine whether that conduct or other circumstances take this case outside the norm i.e., something outside the ordinary and reasonable conduct of proceedings.

The claimant has set out a number of allegations of “conduct ” by the defendants which independently and cumulatively it is said amount to justification for an indemnity costs order. I will deal with these in turn.

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